Refinance Home Mortgage Guide

The mortgage industry today is incredibly competitive. If you are shopping for a mortgage loan you will be able to negotiate for many of the terms and conditions found on your loan contract. Mortgage lenders vary widely in their loan offers, by shopping from a variety of lenders you will be able to tell good lenders from bad ones when comparing fees, terms, and interest rates.

Interest Rates Matter

You will have to pay back the principle balance on your mortgage plus the interest to lender. The amount you pay in interest is determined by the term length of your mortgage and the interest rate you qualify for. If you choose a longer term length for your mortgage, 15 years for example, you will pay less to the lender in interest even if you only qualify for a high interest rate.

Your Credit Determines Your Interest Rate

If you have good credit you will qualify for a much better interest rate than if you have a poor credit rating. If you have bad credit there are steps you can take to improve your credit rating before applying for a mortgage; our free mortgage guidebook goes into detail on how to clean up your credit before applying for a mortgage loan. If polishing isn’t going to help your credit rating your mortgage options may be limited to a bad credit or subprime mortgage lender. If this type of lender is your only option for financing your mortgage you will need to carefully compare offers from a variety of lenders before choosing a bad credit mortgage. The reason for this is that you will pay more for nearly every aspect of your mortgage with a poor credit rating. Shopping around will help you avoid lenders that take advantage of people with poor credit.

Shop for the Best Mortgage Deal

When you shop for a mortgage you need to compare all aspects of the loan, not just the interest rate or the Annual Percentage Rate. If you can get a good faith estimate from the lender without that lender running your credit you can make an informed comparison on all aspects of the mortgage. Make sure you compare all lender fees and closing costs when comparing loan offers. Lender fees and closing costs are subject to negotiation so do not be afraid to haggle with your mortgage lender over these fees. To learn more about shopping for the best mortgage or to refinance mortgage while avoiding common mortgage mistakes, register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage”

Many homeowners used adjustable rate mortgages to finance their homes due to historically low interest rates. Adjustable rate mortgages allowed many homeowners to qualify for mortgages they would not be able to afford using a traditional mortgage loan. Sixteen interest rate hikes later many of these homeowners will soon find out they can no longer afford their homes.

The reason these homeowners are in trouble is either due to the type of adjustable rate mortgage, or the way the lender structured repayment of the loan and the interest rate and payment caps. If you financed your home using an interest only or option mortgage, the period where your loan will have very low payment amounts usually only lasts for three to five years. At the end of this period the lender will add the principle balance back into the loan and adjust the interest rate. This will cause your monthly payment to go up significantly.

For many homeowners that financed their mortgages using these risky mortgages in 2003, the day is quickly approaching when their lenders will adjust their payment amounts. Many of these homeowners are in for a shock when they see the new mortgage payment amount. If this happens to you and you are unable to keep up on your payments you will have to refinance or sell your home.

Your best option to avoid losing your home to one of these risky adjustable rate mortgages is to refinance to a fixed interest rate mortgage. Your payment will go up; however, if you budget accordingly you may be able to head off a financial hardship before it happens. If you cannot afford your mortgage payments now you will not be able to afford a fixed rate mortgage with higher monthly payments; your only option may be to sell your home and purchase a property more suited to your budget. To learn more about your mortgage options including ways to avoid common mortgage mistakes, register for our free mortgage guidebook: “Five Things You Need to Know Before Mortgage Refinancing.”

The number of homeowners relying on risky mortgage loans to finance their homes is rising despite warnings from consumer groups and the government about the risks involved with these new mortgage loans.

Mortgage lenders are now offering a variety of mortgage loans ranging from interest-only to option mortgages. These mortgages are designed to offer the greatest amount of payment flexibility for the borrower; however, that flexibility comes at an extremely high price. The driving force behind the popularity of these risky mortgage loans is the rising cost of housing in the United States. The rising cost of houses has made it difficult for many homebuyers to purchase homes with traditional mortgage financing.

These risky adjustable rate mortgages allow potential homebuyers to qualify for much higher amounts than they would be able to otherwise. This is often abused by many homebuyers that purchase more home than can actually afford.

In some markets, California for example, these high risk adjustable rate mortgages are the only loans homebuyers can qualify for. Many of these homeowners do not understand the risks associated with the mortgages they are taking out and will inevitably lose their homes to foreclosure.

The problem with these loans is that they are not interest only or option based forever. The interest only or option period where the homeowner has lower monthly payments is usually over after five years. At the end of this period the loan is converted to a standard mortgage with an adjustable interest rate. When this conversion happens, the lender will add the loan principle back into the monthly payment and raise the interest rate. This results in a significantly higher monthly payment than the homeowner is used to seeing. If the homeowner’s budget will not support the new payment amount and they are unable to refinance the mortgage or sell, the homeowner will lose their home.

To learn more about your financing options and how to minimize your risk, register for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

If you are considering a home equity loan for any reason, there are pros and cons to using these loans. One of the advantages of a home equity loan secured by your residence is the interest you pay can be a tax deduction for your. Second mortgages and home equity lines of credit are a popular way for homeowners to consolidate debts or make home improvements and repairs. The money can be used for any purpose and still be a tax deduction; however, since you are essentially borrowing from yourself you should put the money to good use.

In order to have 100% of your of your interest be a tax deduction you will need to meet certain criteria for the IRS. In order for your interest to be fully tax deductible you must:

Have less than on million dollars in mortgage debt.

Have your mortgage and home equity loans secured by your primary residence, or a second home.

Use the equity loans to improve, build, or purchase your primary or secondary home.

The IRS has a publication outlining the rules for interest deductions. Refer to IRS publication 936 to learn more about deducting the interest from your home equity loans and mortgage. To learn more about refinancing your mortgage to consolidate home equity loans, register for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”